KARACHI (May 19 2004): The State Bank on Tuesday launched a new scheme for 'Long-Term Financing of Export Oriented Projects' to enable the financial institutions to provide loans on attractive terms for import of machinery
To augment the present efforts of banks, and to help exporters in import of machinery, up-grading existing technology and financing facilities availed at competitive rates, the State Bank of Pakistan has designed a new scheme.
“The new scheme, styled the 'Scheme for Long Term Financing of Export Oriented Projects (LTF-EOP)' will allow eligible financial institutions to provide financing facilities to borrowers on attractive terms and conditions for import of machinery, plant, equipment and accessories thereof (not manufactured locally) by export-oriented units,” said a circular issued by the SBP.
FACILITIES UNDER THE SCHEME SHALL NOT BE ADMISSIBLE:
A) as a reimbursement in respect of the machinery already imported by the commercial importer or by the sponsors in respect of existing or ongoing project;
B) commercial importers or trading houses involved in the commercial import of the machinery, equipment and accessories thereof;
C) for plant, machinery, equipment or accessories thereof for setting up of new projects or for BMR of the existing projects in the spinning and weaving sector of the Textile Group and;
D) for import of such machinery, otherwise eligible under the said Scheme, for which L/C has already been established.
Financial institutions are aware that the Federal Government in its Trade Policy for 2003-04 had announced a number of incentives for the establishment of projects with a view to improve the competitiveness and efficiency of the industrial sector in Pakistan.
Under these incentives, the Ministry of Commerce and Export Promotion Bureau were assigned the task of selecting certain projects for the provision of consultancy, up-gradation facilities etc, on cost-sharing basis.
The linkage of the scheme, with the incentives announced under the current trade policy is another important feature, as this linkage is expected to bring synergy to the efforts of all stakeholders.
The State Bank will provide finance to the banks on service charge basis depending upon the weighted average yields on 12 months T-Bills and 3 & 5 years PIBs.
This would be keeping in view the period for which refinance shall be availed by them against disbursement made for equivalent tenures. The following rates have been fixed under the scheme for the period up to 28-02-2005:-
— Rate of refinancing to the banks/DFIs
— For borrowers requiring financing upto 2 years. 2.0 % p.a.
— For borrowers requiring financing over two years but upto 3 years. 3.8% p.a.
— For borrowers requiring financing for period over three years and upto maximum period prescribed under the scheme ie upto 7-1/2 years. 4.9% p.a.
The banks shall be entitled to earn a maximum spread of 3 percent on financing provided by them.
While the credit decision under the Scheme will primarily be made by the banks and DFIs, they are expected to give preference for meeting the financing needs of the borrowers / projects availing different incentives announced by the government under the Trade Policy for 2003-04.
This preference shall be to projects, so selected, that have shown more visible efforts at being implemented according to their feasibility. Requirements for machinery import would be specific and aligned to these projects, making it convenient for banks to appraise the project.
Likewise, the banks and DFIs will also ensure that financing needs of the borrowers from the SME sector are given preference as 50 percent of the funds that the State Bank shall allocate to each bank and DFI, will be utilised for meeting the financing needs of borrowers from the SME sector.
Banks and DFIs desirous to provide financing facilities to their constituents have been advised to approach the SBP for determining their eligibility for financing under the Scheme as well as the amount which they project to disburse during 2004-05 under the Scheme.